Some people believe that winning a binary options trade depends on luck, but we believe it’s all about having a proper market understanding. No one can stop you from winning a considerable profit when you know the right way of examining charts and patterns.
But the issue is finding an excellent trading strategy for taking a position in the market is not easy. The options are vast enough to make you feel overwhelmed in no time. So, if you want to save yourself from the extra work, you should use the Open Range Breakout trading strategy.
This strategy is quite popular among traders as it lets them place a trade that has better chances of winning. In short, this trading strategy saves them from losing vast amounts of money.
One of the best ways to let volatility subside is by waiting on the sidelines. Also, it would help if you gain profitability from the trend when the market opens. Open Range Breakout is an easy-to-understand trading strategy.
You can read this post till the end to thoroughly understand what this strategy is? How can it be calculated, and how to identify high profitability using it?
What is an Open Range Breakout strategy?
Open Range Breakout is an interesting trading concept. It lets traders analyze the market and further helps them take a trade position according to the price break.
As the name suggests, this strategy prefers a time frame right after the market has been opened. What happens is that while placing a trade, it’s essential to use a timeframe that ideally suits the trading style. And generally, traders prefer an open time frame in the first 30 minutes.
In simple words, the opening range is the highs and lows of a given period after the binary options trading market opens. It sets the mood for the trading of the day, whether uptrend or downtrend.
Open Range Breakout is also considered an essential element of continuation and reversal chart patterns. That’s because this strategy is mainly used to identify the asset price reversal or move in the first hour.
The reason that the first hour is considered is that it’s the most dynamic time. It’s the time when the majority of traders are active. That means it’s the time when you are likely to win a better payout. But without a detailed and informed trading plan, you might lose the trade.
Size of Open Range Breakout
An essential factor to consider while using the Open Range Breakout trading strategy is measuring the size of the opening range. One can do it once the market opens. Use a candlestick chart for it and keep an eye on two candles.
Remember that, out of these two candles; one is created after the market opens. And the other one is from the previous day’s trading session. Note down the highs and lows of the candles. After that, calculate the difference between the two candle’s prices, which is the size of the opening range.
If you are an intraday trader, you can use this trading strategy in three ways.
Volatility
One way you can successfully use Open Range Breakout is by identifying the volatility of the asset. One can identify volatility with the help of an ATR indicator. After knowing the volatility, you need to hold a position in the assets that shows upcycle. Without volatility in the trade, you might lose it.
Volume
The second way is spotting volume in the market. One can identify volume either by using a reliable trading tool or manually. Once the volume is revealed, you can make profitable Open Range Breakout trades.
Relative strength
The last way to win a considerable profit in Open Range Breakout trade is by obtaining relative strength. For this, you need to divide the asset’s price with the broader market index.
Now, if you want to make short trades, look for a sloping line on the downside. However, you need to concentrate on the relative strength line sloping upside to make a successful long trade.
The basic idea is to make a trade on the long side of the respective trade. In simple words, relative strength is a way of looking for underperformers for short trades and outperformers for long trades.
What is an Open Range Breakout calculator?
Do you know what the most crucial part about the Open Range Breakout trade is? It’s the breakout. Why you might wonder? When the price of an asset breaks down out of the range, it shows a change in the market.
There is a possibility that the price will continue to move in the same direction. At this point, the Open Range Breakout strategy uses Range Breakout as entry points. Here, the breakout suggests two things.
- If there is a break in the opening range downwards, the price will move in the bearish direction.
- However, if the stock breaks open range upwards, then the price of an asset will proceed to travel in the bullish direction.
When you enter the trade after the price breaks out of the opening range, it’s advised to place a stop loss in the middle. This way, you can stop any drastic loss.
Different Open Range Breakout trading strategies
If you want to use Open Range Breakout Trading Strategy, you must know about its different types.
Early morning chart breakout
This one is a widely accepted and used trading strategy because it focuses on the highs and lows of breakout. Also, it helps to identify the size of the gap.
Traders generally use this strategy for identifying the boundaries of gaps. After that, they trade in the same breakout direction. Also, when you use the Early Morning Chart strategy, you must place a stop loss in between. It will save you from massive losses.
Gap reversal
The next Open Range Breakout Trading Strategy is the gap reversal. This situation arises when the price breaks the upper level of the opening range. Here, the gap is bearish. But if the price breaks the lower level of the opening range, the gap is termed bullish.
In simple words, the gap reversal occurs when the range breaks in the reverse direction. While using this strategy, don’t forget to place a stop loss as it will save you.
Chart pattern gap pullback buy
This strategy is ideally used after spotting a bullish gap on the trading chart. After that, the price of assets moves in the opposite of the gap direction. It further results in creating a bearish situation, which is known as a pullback.
To successfully use chart pattern gap pullback, buy, knowing the accurate pullback purchasing time is essential. For this, check the reversal candlestick pattern as it reveals the right time. After that, wait for the approval.
Lastly, you can place a stop loss below the lowest point of the opening range to avoid losing trade. When using this trading strategy, you are required to trade for a minimum bullish.
Identifying high profitability in Open Range
Here’s how you can identify high profitability in Open Range Breakout.
Importance of narrow range
The best way to understand the market movement is by focusing on cluster candles rather than a single candle. You can identify narrow range candles concerning X candles. Here, X is the number of days.
Ideally, traders use two narrow chart patterns, i.e., Narrow Range 7 and Narrow Range 4 and NR7 and NR4. Here, you can spot NR4 when the range of candles is the smallest among the previous four candles. And NR7 when the current candle range is the smallest among the last seven candles.
The reason that these ranges matter is because they show volatility contraction.
Importance of stock selection
Another way one can identify high profitability is by selecting the right kinds of assets. When you select a highly volatile asset, you get an opportunity to earn more profit. But in this case, the risk also increases.
Importance of high volume node
One can identify High Volume Node in binary options trading by looking for the area where the maximum trading activity takes place. It would be helpful to place a trade when the node is located above the opening range breakout. It’s the most profitable area.
Importance of VWAP indicator
VWAP indicator in binary options trading is essential because some significant breakout in the opening range breakout strategy happens above it. But if the gap is more than 2%, it’s not advised to trade as the area no longer remains profitable.
Conclusion
In binary options trading, Open Range Breakout is an essential trading strategy as it consists of some significant and profitable trading areas. But if you don’t have a solid trading strategy, you might end up losing the trade.
For enhancing your chances of winning, place the stop loss above or below the breakout to manage risk. And if the trade moves as per your speculations, you can find a winning exit point.
Although the Open Range Breakout strategy is an excellent way to win a huge payout, you must avoid initially trading large amounts. Whether you are a professional or a newbie trader, starting small can be helpful.
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